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Conditions to be Tied to Big Bailouts; Obama Blames Wall Street Greed for Economic Woes; China Faces Backlash After Tainted Milk Scandal

Aired September 22, 2008 - 13:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

KYRA PHILLIPS, CNN ANCHOR: Brother, can you spare $700 billion? Can you even imagine $700 billion? This hour, we break down the sky- high cost of cleaning up the big banks' balance sheets.
President Bush says the cost of doing nothing is higher. Do you agree? We're reading e-mails. The words "hell no" come up a lot.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Staff Sergeant Aubrey Stamps. Got a boy that needs help.

(END VIDEO CLIP)

PHILLIPS: Spike Lee's tribute to the Buffalo Soldiers. The filmmaker joins me live with the inside story of his "Miracle at St. Anna."

Hello, everyone. I'm Kyra Phillips, live at the CNN World Headquarters in Atlanta, and you're live in the CNN NEWSROOM.

$700 billion and make it snappy. The Bush administration is prodding Congress not to linger over the biggest financial bailout since the Depression. It's a 7 followed by 11 zeros added to the national debt to buy up the mortgage debt that's poisoned the nation's financial system, maybe the world's.

The Democrats, even some Republicans say not so fast; they want some independent oversight, help for struggling homeowners and no outlandish pay or severance for the bosses of the firms that are getting bailed out.

The former investment bank, Morgan Stanley, is getting a mini bailout from Japan. The Japanese mega bank, Mitsubishi USA is buying as much as a fifth of Morgan Stanley, which along with Goldman Sachs, is fundamentally changing. They've gotten Fed permission to become bank holding companies.

For now, all eyes are on Capitol Hill. Our Brianna Keilar is there.

Brianna, House Speaker Pelosi promises no blank checks. Is that the consensus?

BRIANNA KEILAR, CNN CORRESPONDENT: Yes, Democrats and a lot of Republicans, they want oversight over this program that's being proposed by the Bush administration. While Democrats are fine with the price tag and they're OK with the strategy, which is having the federal government basically take these bad mortgage-backed securities off the hands of financial institutions. They really want to know where the money is going and to have some control over that.

Here is Congressman Peter Defazio, a Democrat from Oregon. This is what he said on the House floor just a short time ago.

(BEGIN VIDEO CLIP)

REP. PETER DEFAZIO (D), CALIFORNIA: Secretary Paulson has submitted a simple proposal to Congress. This is it, three pages. It's about $1 billion a word. And it is quite simple. Secretary Paulson gets the key to the treasury. Going to start off by borrowing $700 billion in the name of the American people. Maybe more later. And it waives all laws -- all laws -- no oversight. No one looking over his shoulder.

(END VIDEO CLIP)

KEILAR: So Democrats particularly loud in calling for oversight, but Republicans want it, as well.

Democrats have a number of other demands, as well, including getting the government involved in refinancing individual homeowners, those homeowners who may be facing foreclosure on their homes as we speak.

Also, a big thing Democrats are talking about: limiting executive pay. It is not sitting well with Democrats that some of this $700 billion could be used for corporations who then turn around and give huge severance packages or annual salaries to their CEOs. So that's a big sticking point for Democrats on his.

But Treasury Secretary Henry Paulson saying they need to pass something that is clean and quick and that they shouldn't try to solve all of the financial woes with this legislation they're trying to push through this week.

Negotiations and hearings obviously continuing. In fact, Secretary Paulson, as well as the chief of the Fed, Ben Bernanke, as well as the head of the Securities and Exchange Committee -- Commission, pardon me, Christopher Cox, all three of them going to be before the Senate Banking Committee tomorrow, Kyra, for a hearing.

PHILLIPS: All right, Brianna. Thanks so much.

And if you think $700 billion is scary, you ought to hear what could happen if the banking-lending-housing system completely shuts down. For that we turn to senior correspondent Allan Chernoff -- Allan.

ALLAN CHERNOFF, CNN SR. CORRESPONDENT: Kyra, this is really an extreme measure that we're talking about over here, but the scenario that has been painted by the treasury secretary and head of the Federal Reserve is scary, to say the least.

In fact, Chris Dodd said last week, after a briefing from the treasury secretary and the Fed chief, that the oxygen went out of the room. Basically describing the financial abyss that they were looking down.

Here's the scenario. In fact, last week, we got a sense of it. Banks basically stopped lending to each other on an overnight basis. Companies were not able to raise credit.

Now, what would happen without a bailout? Have a look at this. Essentially, a lending freeze. That means that banks can't fund their operations.

And the news that we have today, that Morgan Stanley and Goldman Sachs are going to become bank holding companies, essentially commercial banks, that's partly because of this whole crisis that we saw last week. They're afraid that they won't be able to get the money they need to keep on operating. That's what happened to Lehman Brothers. If they're commercial banks, they can get safer deposits from you and me, from the public. So that's one reason that's happening right now.

Let's go back to the scenario. So banks wouldn't be able to fund their operations. If they can't do fund their operations, they can't lend money to consumers, to companies. And then companies can't expand. Maybe they can't even meet their payrolls. Corporate losses would mount. Then, what clearly appears to be a recession, could possibly become a depression.

Now that is really the nightmare scenario that we've been talking about, that the treasury secretary was describing to members of Congress last week. That is the reason that the government is taking this very, very extreme measure, essentially, throwing capitalism on its head.

PHILLIPS: Nightmare it is. Allan Chernoff, thanks.

OK, you've heard the dollar amount over and over again. You heard Allan say it. I'll say it again: "700 billion." And I'm betting that you've never seen it or put your hands on it. But can you wrap your head around it?

Let's give it a try.

(BEGIN VIDEOTAPE)

PHILLIPS (voice-over): From war (ph) to oil to apple pie. Let's put this big chunk of change in perspective.

$700 billion. That's around 200 billion more that what the U.S. Has spent on the Iraq war so far.

It tops the total Social Security benefits paid last year by more than $100 billion.

Plus, take notes here: it's nine times the amount spent on education in the U.S. last year.

And if you're looking for some cash at hand, $700 billion would give every man, woman and child in America nearly $2,300 each. It would also buy more than 6.6 billion barrels of oil at today's price. And with current U.S. oil consumption, that would last about 300 days.

It's 35 times the amount spent on all foreign aide in most years. But it's also as American as apple pie. McDonald's apple pie, that is, 2,000 of them. That's how much $700 billion would buy for every single American.

(END VIDEOTAPE)

PHILLIPS: CNNMoney.com asked for reader e-mails on the bailout plan, and they weren't disappointed.

Bob spoke for the majority when he wrote: "What the -- will this do to the dollar? To cover the bailout we'll have in print money until we run out of ink -- hyperinflation anyone? Hell no! Let the companies fail.

But Jody says that would be worse. "Listen, people," Jody writes, "it's as simple as this: if we do nothing and let the financial system fail, can you say Depression? There would likely be a run on the banks. Corporations who employ you will fail. Want to buy a new home? Forget it. Let's not forget about your 401(k) plan at work."

Want to weigh in? Post your thoughts at CNNmoney.com. We'll read a little more in a little bit later.

So what's the verdict on Wall Street? Investors are skittish, as usual. We'll get a full report from our Susan Lisovicz at the bottom of the hour. Dow Industrials down 215 points right now.

And live pictures now out of Wisconsin. The big bailout plan, bit on the agenda for both presidential candidates today. Barack Obama's making his third visit in a month to Wisconsin, where polls show that he's in a tight race with John McCain. He's speaking this hour at this rally in Green Bay, Wisconsin. CNN will bring his comments to you live once he steps up to the podium. Obama's wife Michelle also making stops in three other Wisconsin cities.

We heard earlier today John McCain held a town-hall meeting in Scranton, Pennsylvania. He says the government bailout plan needs more scrutiny and a few more people to scrutinize it.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: Never before in the history of our nation has so much power and money been concentrated in the hands of one person, a person I admire and respect a great deal, Secretary Paulson. This arrangement makes me deeply uncomfortable. When we're talking about trillion dollars of taxpayer money, "trust me" just isn't good enough. (END VIDEO CLIP)

PHILLIPS: McCain is pushing for a high-level oversight board to help dole out the money and make sure that those who get it don't squander it.

You can bet both presidential contenders will make more stops in Florida, Ohio and Missouri, three of the states that could help decide the election. A new CNN Florida poll of polls shows that McCain has just a one-point lead over Obama after holding a wider margin there for most of the summer.

A CNN poll of polls in Ohio shows McCain up there by one point. The state's considered a must-win for previous GOP candidates, by the way.

McCain is doing better in Missouri, where a new Research 2000 polls shows him with a four-point lead.

Six weeks to go until the election, but some people aren't waiting. Early voting started today in Virginia, Kentucky and Georgia. Over the next few weeks, more than 30 states and Washington, D.C., will allow early voting by mail or in person. Election officials are expecting a boom in early voting this year, with more than one-third of registered voters expected to cast ballots.

Now, of course, the votes won't be counted until election day.

So who were the targets of that mammoth bomb blast in Pakistan? Was someone planning on the president and prime minister having dinner there?

Thanks, Fort Worth, for all your help. And Hurricane Ike evacuees on the road home and on the road to recovery.

(COMMERCIAL BREAK)

PHILLIPS: A religious compound raided as part of a child porn and abuse investigation. Kind of sounds like deja vu. This time, though, we're talking about the Tony Alamo Christian Ministries in Arkansas.

Federal and state authorities swooped in on the 74-year-old evangelist's property over the weekend. Six children were placed in state custody. Right now, Alamo is in California. He says, like Jesus, he's being persecuted.

CNN's Don Lemon talked to Alamo last night.

(BEGIN VIDEO CLIP)

DON LEMON, CNN ANCHOR: Why would they just make up these allegations against you, Mr. Alamo?

TONY ALAMO, EVANGELIST: Well, why did that make up allegations about Jesus and nail him to the cross? They will not find any pornography there. There is none. There never was any. And there's -- child abuse or child pornography or anything like that. They're barking up the wrong tree this time.

(END VIDEO CLIP)

PHILLIPS: Things actually went down a little earlier than planned. Seems that someone in the U.S. attorney's office accidentally sent details of the planned October raid to dozens of media outlets.

Now, after years of delays, a nearly $2 million tab for taxpayers, the long-awaited murder trial of Brian Nichols began today in Atlanta with lengthy instructions to the jury. Nichols is accused of killing four people in a shooting spree that began in a courthouse and shut down parts of the city in 2005.

While his defense team concedes that Nichols killed a judge, court reporter, sheriff's deputy and a federal agent, they say he's not guilty because he didn't know right from wrong.

Another strong signal today that North Korea may be preparing to restart its nuclear program. The head of the U.N. nuclear agency says that Pyongyang is requesting that field and surveillance equipment be removed from the Yongbyon nuclear reactor. He says that the North Koreans have told him they only want to carry out tests using non- nuclear material.

Pyongyang said last week it's taken steps to restart that reactor. Began disabling it last year under a deal calling for it to be removed from the U.S. list of countries sponsoring terrorism.

Well, two days after a massive truck bombing devastated a Marriott Hotel in Pakistan's capital, a dispute over the possible intended target. A government official says that the president and prime minister were to dine at the hotel on Saturday, but plans changed at the last minute. That's disputed by the hotel owner and a Pakistani senator, who says that the dinner was always to be at the prime minister's office.

That blast killed at least 57 people and wounded more than 260 others.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: One big noise. After that, nothing. I remember smoke.

UNIDENTIFIED MALE: I saw some glass in the truck, and there was lots of fire around the truck. I prayed to my God; I got better and better.

(END VIDEO CLIP)

PHILLIPS: No one has claimed responsibility for that bombing, but officials suspect it was the work of al Qaeda or Taliban insurgents. In South Africa, the key question this hour is who will succeed ousted President Thabo Mbeki. Mbeki is being forced to resign after losing a power struggle with Jacob Zuma, leader of the ruling African National Congress Party.

Government sources say that Zuma's deputy will become interim president. Zuma is barred from taking over now, because he's not a member of parliament. But he is expected to become president after elections that must be held by next July.

Another international leader now on the outs, Israel's prime minister, Ehud Olmert. He resigned yesterday under the cloud of several corruption investigations. Israeli president, Shimon Peres, today asked Foreign Minister Tzipi Livni to form a new government. If she succeeds, she would become Israel's second female prime minister after Golda Meir.

And lots of parents are struggling with some new math these days. Some middle-class families finding that belt-tightening and private school tuition don't add up.

Spike Lee says he's never made a film like this one: an epic war film chronicling the all-black Buffalo Soldiers. He joins us to talk about it.

(COMMERCIAL BREAK)

PHILLIPS: Straight to Barack Obama speaking in Green Bay, Wisconsin. The era of greed, he says, on Wall Street is what he's going to focus on.

(JOINED IN PROGRESS)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL NOMINEE: ... to resolve the immediate crisis, and to avert an even broader economic catastrophe. As we do act, Washington has to recognize true economic recovery requires addressing not just the crisis on Wall Street but the crisis on Main Street so many people have been feeling in their own lives, long before the news of last week.

We need a plan that helps families stay in their homes and workers keep their jobs, a plan that gives hard-working Americans relief, instead of using taxpayer dollars to reward CEOs on Wall Street.

And we cannot give a blank check to Washington, with no oversight and no accountability, when no oversight and accountability is exactly what got us into this mess in the first place.

Now -- so I'm working with anybody who's willing to get the job done to try to figure out how we get out of the immediate crisis of this week. But no matter what solution we finally decide on, it is absolutely critical that we get to work immediately on reforming the broken politics, broken government that allowed this crisis to happen in the first place. And we can't do this again. We can't put up with eight more years of mismanagement of the economy. We can't put up with eight more years of no regulation. Enough is enough.

I mean -- think about it -- think about it, Green Bay. We didn't arrive at this moment by some accident of history. We're in this mess because of a bankrupt philosophy that says we should give more and more to those with the most and hope that prosperity trickles down to the rest of us.

We're here because for too long, the doors of Washington have been thrown open to an army of lobbyists and special interests, who have turned our government into a game only they can afford to play, who have shredded consumer protections; fought against common-sense regulation, the rules of the road; distorted our economy, so that it works for them instead of for you.

We're here because of an ethic of irresponsibility that's swept through our government, leaving politicians with the belief that they can waste billions and billions of your money on no-bid contracts for friends and contributors, select pork projects in the bills during the dead of night, spend billions on corporate tax breaks we can't afford and old programs that we don't need.

And today -- today, even as Congress debates an emergency plan to save our economy on the verge of collapse, there are reports that lobbyists and CEOs are already lining up to figure out what's in it for them, to find out how they can get theirs. Green Bay, how about yours? Green Bay, enough is enough.

And -- it is time for us to stand up and say, "No more." We are going to start doing things differently here in America under a new president with a new vision for our economy and new vision for our future.

You know, I -- I began this race for the president as the one candidate who hasn't spent a lot of time learning the ways of Washington. I was criticized for that. John McCain, he was spending most of his campaign arguing that the reason he should be president is because he spent a lot of time in Washington.

Let me say this. I've been in Washington long enough to know this. If we want a government that puts the needs of the middle class before the whims of lobbyists and politicians, if we want to grow this economy and prevent a crisis like this from ever happening again, then the ways of Washington must change. We must reform our lobbyist- driven politics. We must reform the waste and abuse in our government. We must reform the rules of the -- rules of the road that let Wall Street run wild and sticking Main Street with the bill. We have to change Washington now.

And listen, I just want to point out, we've been consistent on this. You know, this has been our message from the day we began this campaign. We were -- we were talking about change when we were up, and we talked about change when we were down. And this -- this whole change thing must be catching on, because I noticed that John McCain lately has been trying to steal my signs. He's -- he's trying to make up for 26 years in 26 hours. He's flipping so fast.

He's spent much -- most of the last 19 months arguing that what qualifies him to be president is the decades he spent in Washington. And suddenly, he's had a change of heart, an election-time conversion. After 26 years in Washington, years where he voted for the same, trickled-down, on-your-own policies that got us into this mess. You remember this. George Bush called it the ownership society. Lose your job, you're on your own. Don't have health care, you're on your own. Can't afford college, pull yourself up by your boot straps. You're on your own.

John McCain voted for those laws and those policies again and again and again, and he now claims that he's the one who can clean it all up. I've got to admit, I don't know how these folks say this with a straight face. I mean, who do you think's been running the government for the last eight years? Who's been in charge for the last eight years?

I mean, I guess -- I guess they think that you don't have much sense, because they can stand up with a straight face and say, "We're going to clean it all up." They made the mess. They -- they have been running the government. They've been making the appointments. They have been in charge of the regulations. So how is it that they are now suggesting that they weren't in charge?

Let's be clear. When it comes to regulatory reform, Senator McCain has fought time and time again against the common-sense rules of the road that could have prevented this crisis.

His economic plan was written by Phil Gramm, the architect in the United States Senate of the deregulatory steps that helped cause this mess. You were Phil Gramm. He's the guy who said that we're actually just suffering from a mental recession. It's all in your minds. He's the guy that called Americans a nation of whiners. That's the guy who wrote John McCain's economic plan.

Even knowing what we know now, Senator McCain said in an interview just last night that deregulation actually helped grow our economy. That's what he said. Now that might be true for growing the profits of some big corporations and the bank accounts of some CEOs, but it's certainly not true for American prosperity.

American families, since George Bush has been in office, have seen average family incomes go down $2,000. You're waving your hand saying that was you, remember?

When Bill Clinton was in office, I don't know if you remember, we left with a surplus --

(APPLAUSE)

-- we -- he left office with a surplus. We now have over a $9.5 trillion debt, soon to be 11, at a pace we're going right now. And when Bill Clinton was in office, the average family income went up $7,500.

(APPLAUSE)

Twenty-two million jobs created. So we just have to be clear about the history. And when it comes to taking on the special interests, my opponent sounds like "Fighting Bob" La Follette. He's out there, he's -- sounds progressive, but he acts like a guy who's spent three decades of his life in Washington. He's put seven of the biggest corporate lobbyists in charge of this campaign, lobbyists for the insurance industry and the oil industry, foreign governments and for Freddie Mae -- Freddie Mac and Fannie Mae. That's what I (INAUDIBLE). Who paid, now listen to this, Freddie Mac and Fannie Mae paid John McCain's current campaign manager nearly $2 million to defend them against stricter regulations. And rest assured -- rest assured -- that those lobbyists who are working day and night to elect my opponent, they're not doing it to put themselves out of business.

When it comes to reforming, government waste and spending, Senator McCain talks a lot about earmarks. And here is an area where he does deserve credit. He hasn't requested many of those earmarks during his time in Congress. What he doesn't mention is he's voted for $144 billion worth in just six years, or that he's voted for four out of the five Bush budgets that have been filled with special interest giveaways, and left us with the largest deficit in history. The truth is, our earmark system, what's called pork barrel spending, in Washington is fraught with abuse. It badly needs reform, which is why I didn't request a single earmark last year, why I've released all my previous requests for the public to see, why I pledged to slash earmarks by more than half when I'm president of the United States of America.

(APPLAUSE)

Let's not pretend, as John McCain does, that proposing the elimination of $18 billion worth of earmarks will make up for more than $300 billion in additional dollars he wants to spend on tax breaks for big corporations and multi-millionaires that don't need them and weren't even asking for them, more than $300 billion at a time when taxpayers are being asked to help finance two wars and an historic financial bailout. That's some pretty creative math. You're going to save $18 billion, he says, but tack on another $300 billion worth of corporate tax breaks. It doesn't add up to change. And change in Washington is what we need right now.

(APPLAUSE)

Now, Green Bay -- Green Bay I want to be honest with you. I want to be honest with you. This change is not going to be easy. It's going to require reforming our politics by taking power away from the lobbyist that kill good ideas and good plans, the secret meetings and campaign checks. It's going to require reforming our government by taking on the spending habits of both parties and going after the tax havens and loopholes that big corporations use to avoid paying their fare share while you pay more. It will require reforming our outdated, unfair regulatory system that favors Wall Street over Main Street, but has ended up hurting both. But I'm ready to reform our politics because I've done -- PHILLIPS: The big bailout plan big on the agenda for both presidential candidates today. John McCain speaking in Scranton, Pennsylvania. We took that earlier in the day.

Now, Barack Obama making his third visit in a month to Wisconsin, where polls show he's in a tight race with his Republican counterpart, or challenger, I should say.

So how do you feel about the mother of all bailouts? We're going to read some pretty steamy hot viewer e-mails. Some written in all caps so you know the fury is for real.

(COMMERCIAL BREAK)

PHILLIPS: Well it's been a rough go as -- for stocks today, rather, as investors wait for Congress to take action on that massive bank rescue plan. With more on how it's all playing out on Wall Street let's get to Susan Lisovicz at the New York Stock Exchange.

Hey, Susan.

SUSAN LISOVICZ, CNN CORRESPONDENT: Hey, there's no such thing as subtlety on Wall Street. It's especially been true over the last week or so. Welcome back, Kyra. It's good to have you back.

There's been a lot going on here that's for sure. Well, the headlines today concern Goldman Sachs and Morgan Stanley, the last two independent investment banks. Well, and then they were none. They have become investment -- excuse me -- bank holding companies and they will be exposed to much more government scrutiny, more stringent capital requirements and they will not be allowed to take as much risk.

What we're seeing in terms of their share prices -- Morgan Stanley is up on a stake by a Japanese bank. Goldman Sachs is down 5 percent. And the list, by the way, of banned short sell stocks has been expanded and now includes General Electric and General Motors. Both are Dow 30 components, not known so much for their financial operations, but it's that kind of fear in the marketplace that is driving these actions.

And fear is what you're seeing play out on the big board. The Dow right now is down 267 points, or 2 1/3 percent. The Nasdaq is down 2.75 percent.

Where's the money going today? Into oil. Oil right now, up more than 10.5 bucks. Now this may be a record at this point. We saw it in the spring, oil soaring on just concerns about the Middle East. But this is where a lot of money has been going in the last couple of trading sessions. Also, of course, certainly bolstered by the temporary ban on short selling in financial stocks. Oil right now is up nearly -- trading at $116 a barrel.

So just a lot of extremes here, Kyra. Once again, we're seeing it play out on Wall Street/ Back to you.

PHILLIPS: We're two extremes reporting on the extremes. That's for sure, Susan.

All right. See you in a little bit.

LISOVICZ: You got it.

PHILLIPS: Reading, writing, 'rithmetic, recession. It's the fourth R that is causing trouble for middle class families right now. Many people finding that they have to subtract private school tuition from their budgets. But as CNN's Kara Finnstrom reports, some California parents have been pleasantly surprised by public their schools.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: This is for Katie Scarlett (ph).

KARA FINNSTROM, CNN CORRESPONDENT: The Ennis family never thought they would do this --

UNIDENTIFIED FEMALE: He's 6.

FINNSTROM: -- Pull all three kids out of private schools and go public.

TAMMY ENNIS, PARENT OF PUBLIC SCHOOL STUDENT: I have a lot of anxiety built up and I just want to make sure that they're OK.

FINNSTROM: But when the economy began to tank, it hit the Ennis family. One cost that especially hurt, rocketing tuition.

ENNIS: From $8,000 to $12,000 in today's economy.

FINNSTROM: That's per child.

ENNIS: That's just too hard.

FINNSTROM: The Ennis' are part of a growing trend of middle income families transferring their kids into Pasadena Public Schools. It reverses a trend that began in the '70s when a judge ordered public schools here to desegregate through bussing. That led many middle and upper income families to get out.

MARYBETH NOBS, PARENT OF PRIVATE SCHOOL STUDENT: Feedback was very negative about the schools from drugs and bullying.

UNIDENTIFIED FEMALE: The importance of taking a look --

FINNSTROM: But public school test scores in Pasadena, and across California, have risen in recent years. And a grassroots public education group is showcasing that improvement to attract some parents back to the public school system.

KRISTIN MASCHKA, PASADENA EDUCATION NETWORK: We don't do it by doing spin, we just do it by making it easy for parents to get good experiences with the schools, get on campus. They tell their friends. KATHY ONOYE, PASADENA UNIFIED SCHOOL DISTRICT: We are really seeing a ground swell of parents coming to our schools and I think it's exciting.

FINNSTROM: Tammy Ennis, a teacher herself who has worked at private and public schools, looked at public school statistics --

UNIDENTIFIED FEMALE: And you're Grant (ph)? Remember? I remember you.

FINNSTROM: -- and visited campuses.

ENNIS: I was very pleased and surprised.

FINNSTROM: Educational leaders say the influx of middle income kids benefits everyone, including teachers.

RICHARD KAHLENBERG, CENTURY FOUNDATION: We know from 40 years of research that all students do better when there is a core of middle class families in a school. And all students do worse when there are high concentrations of poverty.

FINNSTROM: The Ennises simply hope their kids won't lose out in the process.

ENNIS: It's a child. It's -- you know -- you have to know that your child is getting the best education that he can.

FINNSTROM (on-camera): Now many Pasadena families say even with that increase in test scores, they still believe public schools here have a long way to go. But the interest statewide does appear to be growing. We checked with a half a dozen major school districts across the state, and all are reporting at least a slight increase in transfers from private schools.

Kara Finnstrom for CNN, Pasadena, California.

(END VIDEOTAPE)

PHILLIPS: Bailed out, fed up and mad as hell. Check out some of the fury coming into CNNMoney.com from folks stewing over the government bailout plan that has way too many zeros for them.

This is what we're getting right now. You can see the sarcasm steaming from Mike in Miami: "Bail out everybody. Wall street gamblers, airlines, auto industry, credit card debt, auto loans, people who bought houses they couldn't afford, student loans, casino debt, etc. What the hell, just give everybody $1 million and be done with it."

Nick had an aunt that spent lavishly, "... bought her 16-year-old a Cherokee saying her accounting job paid for it. She bought fridges with disco balls, new kitchen counters, hardwood floors, and a Lexus. She filed bankruptcy and is probably $100K underwater on her house. Meantime, I lived in virtual depression to pay off all my student loans and debt from college, live on rent and own a Toyota Yaris. Someone please tell me why I need to bail that person out? Why?"

And Danny in Texas says: "Trickled down economics, tax breaks to increase jobs ... now taxpayer money to prop these companies up? Call your congressman stop blogging, posting comments and call your congressman" -- in call caps there. "Show them you are not a nation of fluoride heads with IQ's in the lower 80s."

Protecting the innocent. The number of babies sickened by milk intentionally contaminated with an industrial chemical tops 50,000. Take a look at what China is doing to protect its children.

(COMMERCIAL BREAK)

PHILLIPS: 1:44 Eastern time. Here are some of the stories we're working on in the CNN NEWSROOM.

The bombing attack in Islamabad, Pakistan -- was it to be a high level assassination attempt? Well a government official says the president and prime minister were to dine at the Marriott Hotel Saturday when a suicide bomber attacked it, but changed plans at the last minute. The hotel owner and a Pakistani senator say that's not true.

New fears that North Korea wants to resume its nuclear program. It wants the U.N. nuclear agency to take the seals off of closed nuclear facilities. North Korea says it just wants to carry out tests not involving nuclear material.

And after three years of delays, opening statements are set to start this afternoon in the Brian Nichols murder trial. He is accused of gunning down four people in Atlanta, including a judge in a 2005 rampage.

Four babies are dead, thousands of others are sick and parents are outraged as the scandal over tainted milk in China expands. The country's chief quality watchdog has resigned, and other countries are banning imports of Chinese milk products.

China has another big image problem on its hands, by the way. Here is John Vause.

(BEGIN VIDEOTAPE)

JOHN VAUSE, CNN CORRESPONDENT: As the number of sick babies and children increases almost ten-fold in recent days, China's most senior leaders are trying to show they care. On state run TV, Premier Wen Jiabo was shown meeting with parents at a Beijing children's hospital. And later, he apologized.

"Manufacturers and owners of dairy companies should show more morality and social responsibility." "They're heartless," he said.

An appearance by Grandpa Wen, as he's known, is a clear indication the government fears this crisis could have serious implications. He promised tougher safety laws, and hospitals are providing free medical treatment, which may explain the dramatic increase in the reported number of sick kids, and also, angry parents.

"This is not the first time," he says. "I'm upset. Nobody wants this to happen to your child."

"I think this is not only a problem with the dairy companies, but also with the government," says this woman.

And on the Internet, there's growing outrage as word spreads that high-ranking communists are believed to have their food supply, organic, free from chemicals, pesticides and pollution.

"In China, only high-ranking officials count as human beings," wrote one blogger.

"And these are the leaders who are meant to serve the people..." wrote another.

The bloggers are referring to a speech apparently given last month by the Zhu Yonglan, director of the central government's Special Foods Supply Centre, praising the quality of food and medication to senior officials. The speech was posted on the Web site of one of the pharmaceutical suppliers, Chen Dong Kur (ph). By Monday, the company's Web site was no longer available.

(on camera): Senior communists have had their own secure food supply in the past. For Chairman Mao it was protection against assassination by food poisoning. But should word spread that China's leaders are somehow above the masses during this crisis, it might just redirect anger away from the dairy companies and towards the communist party itself.

John Vause, CNN, Beijing.

(END VIDEOTAPE)

PHILLIPS: They served their country back when they were considered second class citizens. Now, director Spike Lee has made a film about their first class heroics in World War II. He'll join me live.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Go, go, go, go, go.

UNIDENTIFIED MALE: Get down. Get down.

(END VIDEO CLIP)

PHILLIPS: They are the Buffalo Soldiers. Black men who were not allowed to serve alongside white American soldiers in World War II. But behind enemy lines, there were no racial lines. And they served heroically.

Director Spike Lee tells the story of four African-Americans stationed in Italy in World War II in his new film, "Miracle at St. Anna." He joins me now live from New York.

Spike, great to see you.

SPIKE LEE, DIRECTOR, "MIRACLE AT ST.ANNA": Great to be here. Great to be here.

PHILLIPS: Well -- I read a quote from you. You said that this film is a brutal mystery and a stark reality of war. Tell me what you mean by that.

LEE: Well, the only reason why I say mystery, the movie is framed in a murder mystery and then it flashes back to Tuscany, Italy, 1944 where you have these men, the 92nd division, the Buffalo Soldiers, who land in Anzio and Sicily. Went up the boot and faced the Germans in Tuscany.

PHILLIPS: And it's not just a war film, but --

LEE: Right.

PHILLIPS: -- it's about compassion, it's about love, it's about breaking the barriers, forgetting about discrimination, and the story of rescuing -- these guys risking their lives to save this young Italian boy.

LEE: Well, it's from a novel by the great writer James McBride and all of the things you just described there is why I wanted to make this film. Because it's much more than a World War II film. And it's opening up Friday, making the rounds. And, you know, every year I do a film, roll the dice, and see what happens. I'm very, very pleased with "Miracle at St. Anna."

PHILLIPS: Well, it's got a powerful message. I know you had a chance to actually get to know some of the actual Buffalo Soldiers that are still living. William Perry, I had the honor of hearing him speak live at the White House.

Tell me how he touched you, Spike. Did he tell you any sort of personal stories, or why it was important to make this film?

LEE: Oh, yes. He's a great man. In fact, he's going to be at the premiere tonight here in New York City with several other Buffalo Soldiers. And also two Tuskegee Airmen and 15 cadets from West Point. So we're all going to get together tonight.

These guys were heroes, American patriots. And to hear their stories, particular when Mr. Perry spoke to me, I just took in all of his words. He's a giant. And our country is greater because of men like this. These are men who fought for this country at a time when they were still considered second-class citizens. It wasn't until 1948, after the war, that President Harry Truman desegregated the Armed Forces of the United States of America.

PHILLIPS: Yes, and I remember even William Perry saying, what the hell took so long?

Let's take a look at another piece from the film, Spike.

LEE: Thank you.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I'm Staff Sergeant Aubrey Stamps. We've got a boy that needs help.

UNIDENTIFIED FEMALE: (SPEAKING FOREIGN LANGUAGE)

UNIDENTIFIED MALE: (SPEAKING FOREIGN LANGUAGE)

UNIDENTIFIED FEMALE: (SPEAKING FOREIGN LANGUAGE)

UNIDENTIFIED MALE: (SPEAKING FOREIGN LANGUAGE)

UNIDENTIFIED FEMALE: (SPEAKING FOREIGN LANGUAGE)

UNIDENTIFIED MALE: Doctor, tell them we're taking the boy to a hospital. They can come too. They need to evacuate anyway. We'll escort them down the mountain.

(END VIDEO CLIP)

PHILLIPS: Wow. Now this is just one story of so many, Spike. I understand when you were there in Italy, that people came up to you and said, oh my gosh, let me tell you how the Buffalo Soldiers helped my family --

LEE: Yes.

PHILLIPS: -- helped my father, helped my grandfather.

You must have been moved --

LEE: Can I say one story in particular?

PHILLIPS: Yes, please.

LEE: An elderly Italian woman came up to me. She could speak a little bit of English. She said she's alive because of Buffalo Soldiers. She had just been born, she was deadly sick. Her mother took her to the base where the Buffalo Soldiers were, took her to black doctor, they gave her some shots, probably penicillin. And she's alive today.

She grabbed me and started to cry. Many -- and that wasn't the only story -- many elderly Italians talked to me about the fond remembrances they have, the fond memories, of these black men who came to Italy to help liberate their country from the tyranny of the Nazis and Mussolini, the fascist.

PHILLIPS: Spike, do we even know what happened to that young Italian boy as he grew up?

LEE: That's made up. PHILLIPS: That's the part of -- I thought that was based on a true story.

LEE: No, no, no, no, no.

PHILLIPS: Oh, my --

LEE: The book is a novel.

PHILLIPS: Right, right, right.

LEE: James McBride took some historical events --

PHILLIPS: OK.

LEE: -- and then wove a great story around that.

PHILLIPS: Oh.

LEE: But the kid in the film --

PHILLIPS: And I was waiting to hear that he became the Italian prime minister. That's what I was waiting for.

LEE: No, that's in Hollywood films. I don't make those types of movies.

PHILLIPS: All right. But in all reality -- good. I'm glad we added a little light -- shows how I need to do a little more of my research.

But on a much serious note, here's what really bothered me the most, is that you saw the reality of what these Buffalo Soldiers did and there were -- they didn't care what color you were, what ethnicity you were. Yet back in the states, they weren't even allowed to train here. And I was reading that because -- you know, the ignorant whites didn't want 15,000 armed men training in their state. I mean, that's just mind-blowing when you think of what they did during the war and how they were treated here in the United States.

LEE: Well, again, this is America of long ago, but not America of today. If that was the case, a Barack Obama would not be possible. So, at the same time I still think that we cannot forget the history of this country. But we're moving forward.

PHILLIPS: Indeed we are. It will be interesting to see what happens in this presidential election. I know you're supporting Barack Obama. And I can't wait to see --

LEE: Yes, we can!

PHILLIPS: That will not be a made-up story. I have a feeling you'll be working on another script in another five years and it's going to center around the presidential elections.

LEE: I hope to. PHILLIPS: Spike Lee, great to see you.

LEE: Thank you for having me once again.

PHILLIPS: All right. My pleasure.

Well apparently it was Tina Fey night at the primetime Emmys last night. The woman could do no wrong. But you haven't lived until you hear Josh Groban's soaring version of the theme from "Cops." It might make you want to call the cops.

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